The Federal Reserve's new leader has remained deliberately quiet, but pressure is mounting for him to break his silence. This Friday marks Warsh's first major address at the central bank's annual Jackson Hole symposium.
Warsh has intentionally avoided sharing his views on rates or the economy since taking office. His stated reasoning: he wants market pricing to remain untainted by Fed communication. Yet economists argue that this silence is becoming problematic. "Chairman Warsh's address is poised to be extremely key given the jump in long-term interest rates and high uncertainty over the path of inflation and the Fed's reaction function going forward," said Kathy Bostjancic, chief U.S. economist at Nationwide.
The survey's 31 respondents are watching whether Warsh will address the recent rise in long-term yields. That rise has already prompted the Treasury's bond-buying intervention and is a key reason the Fed's next move is uncertain.
The survey of 31 respondents reveals deep disagreement over what Warsh should say. Some economists worry that his approach goes too far. "In eschewing forward guidance, Warsh has thrown the baby out with the bathwater," according to Constance Hunter, who serves as chief economist and research head at Economist Enterprise.
When it comes to predicting Warsh's actual moves, 45% of respondents think he will not offer rate guidance in his speech. Another 32% expect hawkish comments, while 19% anticipate neutral remarks. There is one area of broad agreement: 65% of respondents support Warsh's belief that the Fed should talk less for a clearer market view. The debate centers on how much silence is too much.
The Treasury recently announced an unexpected increase in buying long-dated off-the-run securities. "By further front-loading T-bill issuance, I believe the U.S. Treasury is complicating the Fed's job," said Peter Boockvar, chief investment officer at One Point BFG.
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Efforts to bring down long-term rates are spitting into the wind, according to Mark Zandi, chief economist at Moody's Analytics. "Treasury's actions are at best a band-aid and at worst a sign of panic," added Gregory Daco, chief economist at Parthenon EY.
Survey respondents attribute the higher bond yields to several factors: 37% point to increased global debt supply, 28% cite higher expected inflation, 21% blame higher Fed rate expectations, and 19% say it is an improved growth outlook. The 10-year yield is projected to remain in the 4.60-4.70 range until the end of next year.
The Fed's last meeting ended with a 9-3 vote to hold rates steady, with three members favoring a quarter-point increase. Over the next year, 53% of respondents expect rate hikes, 30% expect rate cuts, and 16% predict no change. Separately, 46% of respondents expect at least one rate hike by December.
The economic backdrop is mixed. Inflation is projected to fall to 2.6% year-over-year next year, down from 3.4% this year. Unemployment is expected to stay near 4.3% through 2027, with GDP growth holding just above 2%.
The bond market is signaling that higher yields are here to stay, and the Fed chair's silence is adding uncertainty to the mix. Whether Warsh breaks that silence on Friday could set the tone for markets into the fall. If he stays quiet, expect the guessing game to continue.
